Commerzbank Case Shows Regulator Focus on Individuals

The settlement struck Thursday by German bank Commerzbank and U.S. and New York state authorities is the latest data point on a trend of billion-dollar deals by foreign banks over conduct illegal in the U.S., but it also highlights the increasing role of individual liability and the tipping of the balance toward compliance, experts said.

Commerzbank's settlement reflects the continued increase of U.S. enforcement of the Bank Secrecy Act and anti-money laundering compliance requirements, experts said to Risk & Compliance Journal. It's the third European bank since December 2012 to reach a settlement of this type, involving multiple government agencies working with the bank to resolve the case. The Commerzbank agreements, according to experts, show the importance U.S. and state regulators place on complying with U.S. banking rules.

"When regulators cooperate, it benefits the target of the investigation, which can resolve many of its problems at once. But more importantly, inter-agency cooperation serves the interests of law enforcement by allowing the entire government...to speak from the same page and send a clear message to the marketplace about what conduct is unlawful," said Matthew L. Schwartz, a partner at Boies Schiller & Flexner LLP.

The weight of responsibility for potentially unlawful conduct is increasingly being borne by individuals, experts said, pointing to the consent order Commerzbank signed with the New York Department of Financial Services that required the bank to fire several executives, including the head of anti-money-laundering, fraud and sanctions compliance at the New York branch.

Mr. Schwartz said the New York regulator has, more than any other agency, "put their money where their mouth is" on holding individuals liable. Benjamin Lawsky, the superintendent of New York's Department of Financial Services, has stressed the issue in recent speeches.

"Individual responsibility is becoming more and more the norm," said Robert Appleton, a partner at Day Pitney LLP.

"Bank executives need to be very concerned now about compliance issues, especially in these kinds of cases," he said.

The push toward individual responsibility comes as the natural tension between compliance staff and business people tips toward the compliance side amid an environment of "regulatory climate change," according to Ross Delston, a Washington, D.C.-based lawyer and anti-money laundering compliance expert.

"The biggest lesson for other banks is that if they're following the old paradigm, in which the business side is always right, the risks for running into a problem of this type have risen exponentially," said Mr. Delston.

And, experts said, name-brand customers need to receive more due diligence, pointing to how a company like Olympus Corp. could perpetuate a multibillion-dollar fraud through Commerzbank for years.

"Financial institutions can't take for granted that just because a corporation is a household name that they're free of anti-money laundering risks," said Mr. Schwartz.

As with most cases involving Bank Secrecy Act violations, experts said the Commerzbank case entailed failures to communicate across geographic regions and chains of command. They noted that, in a number of cases, suspicious transactions continued despite warnings from other businesspeople or compliance staff.

"That makes the violation all the more serious in the eyes of the regulators. It's bad enough you didn't see it yourself, but much worse if one of your people points it out to you and you go ahead in spite of that," said Mr. Delston.

Write to Samuel Rubenfeld at Samuel.Rubenfeld@wsj.com. Follow him on Twitter @srubenfeld.